Most traders trade primarily to make money in the markets. Right?
And yet . . . most traders are trying to win in a high stakes game they really don’t understand. For example, most traders don’t understand –
- Why or when their systems work.
- Who they are trading against or even the categories of major market participants.
- The difference between price and value – or which to trade.
- How big money drives the market.
- Why to trade with big money.
- How to look at just one or two things beyond price to help confirm a smarter entry or exit.
If you have been trading for a short while and you don’t understand those critical factors, you’re not likely to be around long in the markets. It’s nothing personal, it’s just the markets doing their job.
Would you prefer to trade for the years to come? Would you like to generate more consistent profits and have fewer, smaller drawdowns? Then you better prepare yourself thoroughly. Capital markets attract more knowledgeable, competitive, and savvy players than any other game in the world. Most retail traders fail to prepare or educate themselves – and most get kicked out of the game pretty quickly. Warren Buffet summed up this idea well in his 1988 Berkshire Hathaway annual letter-
As they say in poker, “If you’ve been in the game 30 minutes and you don’t know who the patsy is, you’re the patsy.”
Don’t be a patsy. Prepare yourself and become a professional player.
As a young man, Van Tharp blew up a trading account while he was in graduate school. He saved up some more money and then he blew up his second trading account – the second time finding out that you could go below zero. Van realized the only common element between those two account-draining experiences was “him”. As a psychology Ph.D., he became really curious about what he had just done so he started exploring the psychology of trading – and made numerous exciting discoveries in the following years that helped individual traders.
More than thirty years later, Van is still exploring and still making discoveries that help individual traders. Over the last year, he developed a new course called Trading Genius II where he dissected the invaluable systems thinking approach to trading. In that workshop, we talk about how the market is a process — not a noun and how you only trade your beliefs. In addition, there are many variables involved in what goes on which is why systems thinking becomes so important. For example, Van has identified 11 different types of systems that can impact your trading and he suspects there are a lot more.
The core 11 types of systems include:
1. Trading Systems
2. You and all the systems involving you (physical, mental, spiritual)
3. Market Type
4. Using Position Sizing Strategies to Meet Your Objectives
5. Underlying Currency (your base currency) and all the things that could act upon it including Fed Action
6. Market Environment (with COVID 19 being a good example)
7. Regulatory Environment
8. How Big Money Plays the Trading Game)
9. Ease of Trading (Taxes, free markets, ability to do what you need to do easily such as go short)
10. Power and Money Games (The Games that Clare Graves Level 5 people play)
11. The Universal Human Game that we talk about in Peak 202.
Not long after teaching that workshop, Van had a conversation with one of his instructors which turned out to be incredibly enlightening for Van about System #8 How Big Money Trades.
Van had developed beliefs about this critical area for traders and has general guidelines for how to use those beliefs. This instructor, however, explained in detail how he had structured his trading business based on his professional experience with big money. Van heard about big money in many new ways and was so impressed with the applicability of this knowledge, he invited him to help him create a new course.
The Super Trader is Chuck Whitman, one of Van’s long-time clients. Chuck started as a runner on the floor of the CBOT when he just was a teenager. He went on to become a floor trader, a market maker, and a principal of a large global market-making firm and a top-performing CTA. In other words, Chuck became a big fish in some very big ponds. He knows from three decades of first-hand experience who might be on the other side of your trade – and why they expect to make money on that trade.
Chuck first attended a Van Tharp Institute workshop more than twenty years ago. After some major transformations in Chuck’s life, Van helped Chuck reconnect recently with his passion for teaching and coaching. Since then, Chuck has stepped back from his trading duties slightly and taught a series of workshops for VTI. He just developed this completely new course with Van though he has been sharing these lessons with his private coaching clients for the last few years.
It turns out that everyone one of Van’s core 11 types of systems could be the basis for some sort of trading system or some sort of edge in the market. Thus, we are really excited to be doing this workshop via Zoom for you.
Understanding Big Money and Market Structure
If we are to become successful traders, we must understand market structure.” — Chuck Whitman
Big money moves through and drives different markets somewhat differently – but the effects are undeniable and often detectable. Van often describes Big Money as the unseen power that makes up the markets.
Big money includes governments, central banks, banks, funds, institutions, etc. In most cases, retail traders just don’t have the power to move markets.
Big Money does have the power though and by digging into the mostly unseen underbelly of the market structure, you can adjust to trade with the big money rather than against it.
What is market structure? Generally speaking, Chuck finds four main groups of participants in most capital markets:
2. Large Speculators
3. Small Speculators
4. Market Makers
Within each major asset class, each individual market has a different structure – a different makeup of each category. Each market participant wants to make money but each group attempts that with different objectives, roles, and strategies. As a result, each market “behaves” differently based on its unique structure.
Understanding these elements can help you develop better strategies, execute better, make more money, and help you avoid getting rolled.
Would you like an example?
Look at commodities. You can tell a lot about supply and demand by watching the price for the product in the cash market — where the product is bought or sold and delivered immediately. Commercials (big money) drive the cash market almost exclusively. These companies aren’t trading but instead are buying or selling because they actually produce or use the product in the short term. As a result, the cash market reveals a lot about the supply and demand of any product. When you notice the cash price begin to rally, you can check and see if it’s diverging away from the deferred futures contract price. If so, the supply is getting tight. Strength in commodity price spreads correlates highly to strong trends in future contract prices meaning — the developing trend you see will likely run for a while. Would you like confirmation of a trend? Futures traders can improve the quality of their trades by understanding the dynamics of their market structure — and regularly monitoring the cash market.
We can find another example of understanding market structure in avoiding going off the cliff with an ETF.
Exchange-Traded Funds are like mutual funds but they can be easily bought or sold as shares in the equity markets. Some ETFs experiences are constructed with a potential mismatch between the liquidity extended to daily traders of the products and the liquidity of the underlying assets. Traders can move in and out of ETFs with ease but many ETFs cannot easily move in and out of the assets they hold — or construct through complex structurings. Such a mismatch opens up possibilities for default when a moving ETF price cannot match the moving price of the underlying holdings.
We saw a dramatic example of this in February 2018 when the ETF XIV stopped trading. This inverse volatility ETF (short VIX) had been a very crowded trade for many small and large speculators (big money) over the previous years as volatility continued to decline — until it didn’t. A quick 5-6% drop in the S&P panicked investors who started dumping XIV. Big money could tell the long-time one-sided trade was over and that the ETF was in trouble so they helped push the ETF “over the cliff.” As a result, the trading in February 2018 “broke” XIV and wiped out the position of numerous holders of the ETF.
Understanding the market structure of volatility would have allowed you to manage your risk and helped you avoid a painful surprise. Actually, that XIV failed was not a big surprise for the traders who look at ETF construction and understand big money and market structure.
About The Workshop
In this workshop, you will not learn specific trading systems, however, Van and Chuck will help you…
- Think about market functions,
- Understand the market structure,
- Capitalize on your role and as a result,
- Trade more profitably.
Van will present the overarching systems thinking perspective to frame the detailed information Chuck will provide.
In addition, Van and Chuck will discuss most of the 11 areas and how they impact your trading, but the major emphasis of this workshop is how big money trades. At various points in the workshop, Van will interview Chuck to elicit Chuck’s primary beliefs. With a grounding in Chuck’s belief structure, you can better understand him as well as consider how useful Chuck’s beliefs are for you personally.
Chuck’s ability to communicate effectively these beliefs and strategies he developed trading with and against big money will help you understand how those beliefs help keep him successful. He started out as an individual trader and now coaches individual traders so he will talk about these topics in ways that you will understand easily. You could talk to dozens of other knowledgeable individual traders for years but still never hear the lessons Chuck will share in just a few hours.
Specific topics Chuck will cover at the workshop:
1. Trading fair value rather than price
2. Two types of trading by the commercials
3. Commitment of Trader Reports
4. Companies managing (manipulating) their stock’s price
5. The role that credit plays in predicting Bull and Bear Markets
6. CDS and the stock price
7. Interest rates and equity trends
8. Arbitrage by commercials
9. Large speculator strategies
10. Small speculator behavior
11. Market makers
12. Order flow
13. Bid-Ask spread (not Big Ass spread)
14. Positive vs. Negative Reversion Strategies
In addition, we’ll be talking about systems thinking and the 11 different types of systems that we have so far identified that could impact your trading.
For example, can you imagine a scenario in which the Federal Deficit for the year could be as high as $5-10 trillion; where we have record unemployment; and a number of areas of the economy are likely to go bankrupt (and yet since March we have stocks going up 300% or more).
Why is that?
By digging down into the details of these and other areas, you will be able to…
- Trade like the Pros with a simple entry and exit strategy that captures EDGE and eliminates slippage.
- Understand an array of strategies that Market Makers and Commercials use that could create new ideas for your trading strategies.
- Learn how Pros trade relationships such as spreads and correlations that are more stable than price alone.
- Identify when commercials believe a product has become extremely cheap or expensive so that you can ride their coattails.
- Understand the concept of Fair Value and how professionals determine it to understand when you are buying at great value and when you are overpaying.
- Know when to initiate, add, reduce, or exit positions based on commercial activity and sentiment.
- Add stock price gaming knowledge to improve your returns and decrease your drawdowns.
- Align your trades with some of the biggest money around – central banks. (Puts a whole new meaning to the phrase “Don’t fight the Fed!”)
- Get a jump on individual stock moves by tracking an instrument about which retail traders have no clue but that big money uses all the time.
- Verify your trading strategies fit in and are working with the ecosystem of your market.
- Free yourself from the zero-sum trading mentality and realize trades can be win-win for both parties.
- Fade small speculators consistently at extremes in sentiment.
- Understand how to pick the least capital intensive trade that best expresses your beliefs and strategy.
These are the kind of lessons that can help make you a more consistently profitable trader over the long term — and you can keep using the systems you already have and know. Or you could trade well intermittently between interruptions by various market surprises and frustrations from trying to trade counter-trend never really understanding why your systems don’t work better.
Save some years and generate new profits in the next month from lessons you’ll learn in this workshop!